How To Get Another 100 Points Out Of Apple
Apple is on some kind of crazy tear, rising from $440 in mid-January to $540 here at the end of February, finally being given a valuation multiple closer to what it deserves. Will it continue to rise to the next milestone of $600 or higher? Perhaps. But for those who like to hedge their bets, using covered calls can be a great way to keep the gains coming while you wait, and give you some downside protection in the event of a pullback or a period of flatness.
Critics will say that you don't want to put a cap on your upside with a rocket ship like AAPL. While that may be true for certain time frames with certain stocks (like AAPL during the last 6 weeks), over a longer period of time (where a stock doesn't go up every day) selling calls will help smooth out the inevitable dips (see A Triumph Of Strategy Over Hope on Barrons.com andOptions for Nervous Investors on WSJ.com).
If you're worried about leaving yourself some upside potential then sell calls that are farther out of the money. If you're worried about a near term correction then sell at-the-money or in-the-money calls (see 15-Year Covered Call Returns Study).
For tips on which options to write on AAPL to capture the next 100 points, seeHow To Get Another 100 Points Out Of Apple on SeekingAlpha.com.What To Do In A Raging Bull Market
Are covered calls the best strategy in a raging bull market, like we've had in the last couple of months? No. But they're not a horrible choice, either. Just because you didn't make as much as you could have (if you hadn't written calls) doesn't mean you should abandon your conservative investment strategy.
To illustrate our thoughts on the matter we've put together a chart showing what the 'best' and 'good' strategies are for each market type:
Obviously, in a strong up market you just want to stay long on stocks and let them ride. If you're nervous about a correction, or just want to get a little extra income then a good strategy is to sell out-of-the-money covered calls.
In a sideways market selling at-the-money covered calls is the best strategy. The time premiums are highest in ATM options so you will maximize your income with this strategy. If you are slightly bullish then sell slightly out-of-the-money calls instead. And if you're slightly bearish then sell slightly in-the-money calls.
In a down market, the best strategy is not to be in it. Just hold cash. If you want to try and get some income in a down market then buy solid companies (not high fliers, momentum stocks, or stocks about to release earnings or FDA announcements) and sell in-the-money-calls against them. You'll have the most downside protection with ITM options.
Bottom line: Covered calls may not be the 'best' strategy in every market, but they are a 'good' strategy in any market. When used over a long period of time you should come out ahead by using a consistent covered calls strategy. The highs may not be as high (compared to buy-and-hold), but the lows certainly won't be as low, either.Decoding The Wall Street Journal
Ever get confused by some of the lingo in the Wall Street Journal? Not quite sure how inverse leveraged ETFs work, or the relationship between interest rates, bonds, gold, oil, and the US dollar? Or how those hedge funds and PE guys make all that money? Now there's a new service that can help.
Decoding The Wall Street Journal is a daily email service that explains what each of the major articles in the Wall Street Journal mean, in simple plain English. If you've ever been in a situation where you're not exactly sure what the WSJ is saying, or the implications of what is said, you should check it out.Share Your Covered Call Success Story
We would like to profile covered call success stories in future editions of Seller's Paradise. Do you have a covered call success story to share?
Want to share a few of your favorite covered call writing tips?
How long have you been trading covered calls?
What broker do you use to trade?
How many trades per month?
Stocks or ETFs?
Favorite research tools?
How many open positions do you manage?
Any entry or exit rules you abide by?
What kind of returns do you target? (or achieve?)
Include as many details as you like to describe your success and email us your story at firstname.lastname@example.org. We may profile you in next month's issue.Like Born To Sell?
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With just over 2 weeks to go until the Mar options expire, the top 4 covered calls Born To Sell members have written are (in order of popularity):
(Note: Born To Sell members have access to the full Top 10 Covered Call list, as well as having this list update real-time as members change positions. These are not recommendations, they are merely a reflection of our members' current positions.)INTC And Other Covered Call Watchlist Stocks
Currently, the top 8 stocks Born To Sell members are using for their Watchlist are (in order of popularity):
(Note: Born To Sell members have access to the full Top 20 Watchlist, as well as having this list update real-time as members change their watchlists. And, you can have the highest yielding covered calls from your personal watchlist emailed to you after the close each day. Never miss a fat premium from your watchlist again!)Want More Covered Call Goodness?
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